Internal Capital Markets and Organizational Forms

52 Pages Posted: 27 Mar 2018

See all articles by Jing Rong Goh

Jing Rong Goh

Risk Lighthouse International, Singapore

Shinichi Kamiya

Nanyang Business School, Nanyang Technological University

Pingyi Lou

Fudan University

Date Written: March 1, 2018

Abstract

We study how the return of internal capital markets (ICMs) and the risk of ICMs differ across three alternative organizational forms: publicly-held stock insurers, privately-held stock insurers and mutual insurers. Because of the different combination of owner, manager and customer functions, these three organizational forms are subjected to different aspects and extents of agency problems, which leads to a variation in the performance of ICMs. In terms of return, we find that the sensitivity of investment increase in highly profitable business lines to ICM subsidy is significantly positive for private insurers, but is insignificant for mutual and public insurers. In terms of risk, we find that the sensitivity of investment increase in highly profitable and highly risky business lines to ICM subsidy is significantly positive for public insurers. Finally, we find that the underwriting ROA volatility is more sensitive to shadow ICM subsidy than to regular ICM subsidy for public insurers.

Keywords: internal capital markets, organizational forms, insurance, mutual, private, shadow insurance

JEL Classification: G22, G32

Suggested Citation

Goh, Jing Rong and Kamiya, Shinichi and Lou, Pingyi, Internal Capital Markets and Organizational Forms (March 1, 2018). Available at SSRN: https://ssrn.com/abstract=3150126 or http://dx.doi.org/10.2139/ssrn.3150126

Jing Rong Goh

Risk Lighthouse International, Singapore ( email )

Shinichi Kamiya

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Pingyi Lou (Contact Author)

Fudan University ( email )

600 Guoquan Rd
Shanghai, 200433
China

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